Real Estate Returns by Strategy: Have Value‐Added and Opportunistic Funds Pulled Their Weight?

Pagliari, Joseph L.

doi:10.1111/1540-6229.12190

Cited by 24 publications

(12 citation statements)

References 54 publications

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“…Further, if the market is efficient, after adjusting for risk, the difference in returns should disappear. However, these notions have never been formally tested for individual properties, though some evidence at the fund level (Pagliari ) casts doubt on these notions.…”

Section: Discussionmentioning

confidence: 99%

“…These two questions have important implications for investors. Accurate measurements of risk and returns for different types of properties are crucial for the construction of mean–variance efficient real estate portfolios, particularly when many of the largest institutional investors are substantially increasing their allocations to privately traded alternative investments including income producing properties (see, e.g ., Novy‐Marx and Rauh , Pagliari ).…”

Section: Introductionmentioning

confidence: 99%

“…While several empirical studies analyze the overall performance of real estate mutual funds (see, e.g ., Gallo, Lockwood and Rutherford , Kallberg, Liu and Trzcinka , Lin and Yung ), it is not until recently that researchers began empirically analyzing the possible risk and return trade‐offs between core and noncore investments. For instance, Pagliari () compares returns of core, noncore and opportunistic funds over a 17‐year period ending in 2012. He levers up core funds so that they have the same return volatility as noncore or opportunistic funds, and then compares the returns of different funds at the same volatility level.…”

Section: Introductionmentioning

confidence: 99%

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Risk and Returns of Income Producing Properties: Core versus Noncore

Gang

Peng

Thibodeau

2017

Real Estate Economics

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This article empirically analyzes whether core and noncore private income producing properties have different investment returns, using a large sample of about 5,000 individual properties during the 1997-2014 period. We use a holding-period factor model to control for both systematic risk, including loadings of both public equity factors and a real estate factor, and nonsystematic risk. We find that core properties have lower systematic risk but higher returns than noncore properties before and after adjusting for both systematic and nonsystematic risk.

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Risk and Returns of Income Producing Properties: Core versus Noncore

Gang

Peng

Thibodeau

2017

Real Estate Economics

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“…They found no significant difference in returns and systematic risk across funds with different investment strategies but increased specific risk in more opportunistic funds. On a riskadjusted basis, Bollinger and Palgliari (2019) and Pagliari (2020) found that value-added and opportunistic funds underperform core funds in the United States. Focussing on the role of specialisation, based on European private real estate funds from INREV, Fuerst et al (2021) showed both country specialisation and country-sector specialisation are associated with superior returns while sector specialisation is not.…”

Section: Related Literaturementioning

confidence: 99%

Long lease real estate – a revised role for real estate in pension fund portfolios

Mansley

Wang

2021

JPIF

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PurposeLong lease real estate funds (over £15bn in Q3 2020) have emerged as an increasingly important part of UK pension fund real estate portfolios. This paper explores the reasons for their dramatic growth, their characteristics and performance.Design/methodology/approachThis study uses data for the period 2004–2020 collected directly from fund managers and from AREF/MSCI and empirical analysis to explore their characteristics and performance.FindingsPension fund de-risking and regulatory guidance have supported the dramatic growth of long lease real estate funds. Long lease real estate funds have delivered strong risk-adjusted returns relative to both balanced property funds (with shorter lease terms) and the wider property market. This relative performance has been particularly strong when wider property market performance has been weak. Long lease funds have objectives aligned with liability matching and their performance suggests they are lower risk (more bond-like) investments. In addition, our analysis highlights they are far less responsive to the wider property market than balanced funds. However, they are not significantly different from balanced property funds in terms of their short-term relationship with gilt yield movements.Practical implicationsFor pension funds and other investors the paper highlights that long lease real estate funds offer a different exposure than balanced property funds. Long lease funds have objectives more closely aligned to the overall objectives for pension fund investment but are not significantly more reliable than balanced property funds in the short-term as a liability hedge. For real estate fund managers, occupiers, developers and others active in the real estate market, the paper highlights why these funds have been (and are likely to remain) attractive to investors leading to substantial demand for long lease real estate investments.Originality/valueThis is the first study to review this increasingly important part of the UK real estate fund universe.

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“…NREFs are classified by investment style as opportunistic, value-added and core investment strategy. In a recent study, Pagliari (2020) showed that core funds provide marginally superior risk-adjusted returns to opportunistic funds, whereas value-added funds provided clear underperformance to opportunistic funds.…”

Section: Literature Reviewmentioning

confidence: 99%

A real estate portfolio management risk assessment framework for nonlisted real estate funds in India

Gupta

Newell

2020

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PurposeThis study provides an extensive risk assessment framework for nonlisted real estate funds' (NREFs) portfolio management in India across their life cycle; that is, the investment stage, the monitoring stage and the exit stage in an emerging market context. The study of risk across these three stages is a new addition to the literature and assumes importance in the context of real estate portfolio management for NREFs in the emerging markets (e.g. India), which are predominantly an opportunistic investment play.Design/methodology/approachThe risk assessment framework is built on the multiactor/multicriteria risk priorities, using analytical hierarchy process (AHP), obtained from 35 experts in four real estate fund management professional groups; namely, investors/fund managers, valuers, consultants and international developers.FindingsThe results demonstrate that the real estate portfolio management risk priorities change across the three life cycle stages of the fund. At the investment stage, specific risks are most critical; at the monitoring stage, it is important to concentrate on all three risks – specific, systematic and management risks; and at the exit stage, systematic risk plays a crucial role. Real estate portfolio management risk evaluation at the subfactor level shows that investee/partner and location selection needs to be critically evaluated at the time of the investment; project execution and quality of development must be monitored during the construction/monitoring period; and repatriation of the funds, currency volatility and exit risk (resale) are critical at the exit stage of the fund.Practical implicationsThe understanding of the real estate portfolio management risk transformation across the life cycle stages is crucial for NREF managers for risk minimization, transfer and mitigation strategy formulation in their real estate portfolios. Unlike previous research that evaluates investment risk, this study breaks the NREF's risks into the investment, monitoring and exit stages. The key risk factors for each stage depend on the NREF's real estate activities for that stage. These activities, in turn, give rise to a typical risk profile for that stage. The findings are crucial for the various stakeholders of real estate fund management and policymakers in an emerging market context; particularly India, one of the fastest growing major economies in the world.Originality/valueThis risk assessment framework for simultaneously assessing risk across the three life cycle stages of NREFs is a new addition to the literature.

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Real Estate Returns by Strategy: Have Value‐Added and Opportunistic Funds Pulled Their Weight?

Cited by 24 publications

References 54 publications

Risk and Returns of Income Producing Properties: Core versus Noncore

Risk and Returns of Income Producing Properties: Core versus Noncore

Long lease real estate – a revised role for real estate in pension fund portfolios

A real estate portfolio management risk assessment framework for nonlisted real estate funds in India

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